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Harvard University Professor Michael E.
Porter is best known for his work on competition and company strategy
and is the most cited author in business and economics. As one of the best known
strategic thinkers of our time, Porter, along with Mark R.
Kramer, Senior Fellow at the Harvard Kennedy School of
Government proposed a new approach to capitalism in 2011, during
the global financial crisis. Their Harvard Business Review article in 2011
titled Creating Shared Value: How to reinvent capitalism – and
unleash a wave of innovation and growth notes that “in recent
years business increasingly has been viewed as a major cause of social,
environmental and economic problems. Companies are widely perceived to be
prospering at the expense of the broader community”. So, they suggest that
business needs to re-purpose itself, moving from viewing value creating narrowly
as short-term financial success, to focussing on broader customer needs and
longer-term success factors that include the communities and environment within
which they operate, and upon which they depend on to prosper.

Porter and Kramer describe shared value as ‘policies and operating practices
that enhance the competitiveness of a company while simultaneously advancing the
economic and social conditions in the communities in which it operates. Shared
value creation focuses on identifying and expanding the connections between
societal and economic progress’.

Companies can create shared value opportunities in three ways:

Reconceiving products and
markets - Companies can meet social needs while better serving
existing markets, accessing new ones, or lowering costs through innovation.

Redefining productivity in
the value chain - Companies can improve the quality, quantity,
cost, and reliability of inputs and distribution while they simultaneously act
as a steward for essential natural resources and drive economic and social
development. - Enabling local cluster development

Companies do not operate in
isolation from their surroundings. To compete and thrive, for
example, they need reliable local suppliers, a functioning infrastructure of
roads and telecommunications, access to talent, and an effective and predictable
legal system.

In its simplest and purest form, creation of shared value is all around us.
Just look at a tree – whether fruit-bearing or shade-giving, trees create value
for the ecosystems that depend on them, and by so doing, grow and prosper
themselves. Some of the champion species of shared value creation are even
highly regarded by humans, such as bees, and earth worms. Bees, for example meet
a social need, create value in their work and enable local clusters to develop
through active contribution to local ecosystems through pollination.

Several companies are already leading ways to create shared value, with
Nestlé being one of the first to produce its first
public report on their performance in this growing field. Bringing the
discussion to Australia with Net Balance,
NAB and 3 Pillars Network,
Mark Kramer will be at the Creation of Shared Value
Forum in Melbourne on the 14th of November
2012

Terence Jeyaretnam is a Director of Net Balance (terence@netbalance.com), one of the world’s
leading sustainability advisory firms.Terence is based in Melbourne.